$~22 *IN THE HIGH COURT OF DELHI AT NEW DELHI. + RFA(OS)No.127/2014 and CM No.13907/2014

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1 $~22 *IN THE HIGH COURT OF DELHI AT NEW DELHI + RFA(OS)No.127/2014 and CM No.13907/2014 Reserved on : 8 th April, 2015 % Date of Decision: 26 th August, 2015 M/S SICPA INDIA PRIVATE LIMITED... Appellant Through : Mr. C.Mukund, Mr. Ashok Kumar Jain, Mr. Pankaj Jain and Mr. Saurav Gupta, Advs. versus MR. KAPIL KUMAR & ORS... Respondents Through : Ms. Lakshmi Gurung and Mr. Sujeet Kumar Mishra, Advs. for R-1 to 3. Mr. Vikas Arora, Mr. Dheeraj Manchanda and Ms. Radhika Arora, Advs. for R-6. Mr. T.K. Ganju, Sr. Adv. with Mr. Adarsh Rai, Adv. for R-7. CORAM: HON'BLE MS. JUSTICE GITA MITTAL HON'BLE MR. JUSTICE P.S.TEJI GITA MITTAL, J. JUDGMENT 1. Vide this judgment, we propose to decide the challenge to the judgment dated 1 st July, 2014 whereby the learned Single Judge has disposed of several applications and consequently the suit RFA(OS)No.127/2014 Page 1 of 156

2 being CS(OS)No.2277/ For the sake of convenience, we propose to refer to the appellant as 'SICPA' and the other parties by the same nomenclature as has been assigned to them by the learned Single Judge. Also to facilitate consideration, we may first and foremost note the parties to the litigation. SICPA India Pvt. Ltd. ( SICPA for brevity hereafter) as plaintiff brought the suit against Shri Kapil Kumar (Defendant no.1); his wife Smt. Ritu Kumar (Defendant no.2); M/s Brushman (India) Ltd. (defendant no.3); ICICI Bank Ltd. (defendant no.4); DLF Ltd. (defendant no.5) and; M/s Genesis Finance Co. Ltd. (Defendant no.6). It is noteworthy that while the opposite party nos.1 to 3 were arrayed as defendants, the defendant nos.4 to 6 were arrayed as proforma parties. They are also so described in the plaint. 3. Details of the applications decided by the impugned judgment dated 1 st of July 2014 and the provision of law under which they were filed are as under: Applications filed by plaintiff : (i) I.A. No.15011/2010 [Order XXXIX Rules 1 & 2 read with Section 151 of the Code of Civil Procedure (hereafter referred to as the 'CPC')] (ii) I.A. No.15012/2010 (Order II Rule 2 read with Section 151 CPC) (iii) I.A. No.478/2011 [Order I Rule 10(2) CPC] (iv) I.A. No.274/2012 (Order VI Rule 17 read with Section 151 CPC) RFA(OS)No.127/2014 Page 2 of 156

3 Applications filed by D-1 to D-3 : (i) I.A. No.6654/2011 (Section 8 of Arbitration & Conciliation Act, 1996) (ii) I.A. No.6657/2011 (Order I Rule 10 read with Section 151 CPC) (iii) I.A. No.20809/2011 (Order VII Rule 11 read with Section 151 CPC) 4. The proposed amendment of the plaint by way of I.A.No.274/2012 was rejected primarily for the reason that the plaintiff was thereby seeking to make out a completely new case and that the amendment to the prayers were barred by law also. I.A.No.478/2011 seeking addition of a party was also rejected consequently by the impugned judgment. The learned Single Judge concluded that I.A.No.15012/2010 was devoid of merit. 5. So far as the reliefs of declaration and mandatory injunction sought against defendant nos.4 to 6 in the existing plaint are concerned, it was held that the same are legally not permissible and as a result, I.A.No.20809/2011 was accepted. As a result of the decisions on these applications, the learned Single Judge was pleased to hold that the plaintiff was disentitled to the reliefs sought in prayer clause 1(b) to 1(d) of the plaint against the defendant nos.4 to 6 and that the suit against them therefore, for these prayers was not maintainable. 6. It was held that as there was an arbitration clause in the loan agreement between SICPA and defendant nos.1 to 3 which was RFA(OS)No.127/2014 Page 3 of 156

4 admitted by the plaintiff. Therefore, so far as the claims of SICPA against defendant nos.1 to 3 were concerned, the learned Single Judge held that the amount claimed by the plaintiff/appellant was recoverable only as per law and the plaintiff was required to take necessary steps for initiating arbitration in accordance with the provisions of the Arbitration and Conciliation Act, For this reason, the suit against defendants nos.1 to 3 could not continue in view of the prohibition under the said enactment. I.A.No.6654/2011 was therefore, accepted. 7. For the sake of convenience, we set down hereunder the heads under which we have considered the facts as well as the challenge in this judgment : I. Factual matrix (paras 8.1 to 8.47) II. III.. IV. Filing and proceedings in CS(OS)No.2277/2010 (paras 9.1 to 9.14) Challenge to the judgment on I.A.No.274/2012 filed by the plaintiff for amendment of the plaint under Order VI Rule 17 of the C.P.C. (paras 10.1 to 10.22) Amendments are not imperative for proper and effective adjudication of the present case i.e. whether it satisfies the real controversy' test? (para 11.1) V. Proposed amendments completely change the nature of the suit (paras 12.1 to 12.40) VI. Amendments result in such prejudice to the defendants which cannot be compensated adequately in terms of money (paras 13.1 to 13.9) RFA(OS)No.127/2014 Page 4 of 156

5 VII. VIII. IX. Proposed amendments were sought malafide and therefore, impermissible (paras 14.1 to 14.18) SICPA had no concern at all with the basement of the property bearing No.D-6/2, Vasant Vihar, New Delhi proposed amendment challenging sale deed of basement was malafide for this reason as well (paras 15.1 to 15.3) Proposed amendments are barred by law (paras 16.1 to 16.19) X. Amendment sought to avoid rejection of the plaint sought by the defendant nos.1 to 3 by way of I.A.No.20809/2011 (paras 17.1 to 17.3) XI. XII. XIII. XIV. XV. Refusing the amendments would not lead to injustice or multiplicity of litigation (paras 18.1 to 18.25) Challenge to the order dismissing I.A.No.15012/2010 filed by plaintiff under Order II Rule 2 of the C.P.C. (paras 19.1 to 19.20) Examination of pleas in I.A.No.20809/2011 (filed on 20 th December, 2011) by defendant nos.1 to 3 seeking rejection of plaint under Order VII Rule 11 C.P.C. (paras 20.1 to 20.42) Challenge to the order accepting I.A.No.6657/2011 filed on 24 th April, 2011 by defendant nos. 1 to 3 under Order I Rule 10(2) seeking deletion of defendant nos.4 to 6 from the array of parties (paras 21.1 to 21.3) Challenge to the order on IA No.478/2011 filed by the plaintiff under Order 1 Rule 10(2) of the C.P.C. for impleadment of Sh.K.L. Chugh (paras 22.1 to 22.17) RFA(OS)No.127/2014 Page 5 of 156

6 XVI. Challenge to the order on I.A.No.6654/2011 filed by defendant nos.1 to 3 under Section 8 of the Arbitration and Conciliation Act, 1996 (paras 23.1 to 23.14) XVII. Costs (paras 24.1 to 24.70) We now propose to discuss the above issues in seriatum : 8. Factual matrix 8.1. To the extent necessary for adjudicating upon the challenge placed before us, we proceed to note the essential facts hereafter Mr. Kapil Kumar - the defendant no.1 was the managing director while his wife Ms. Ritu Kumar the defendant no.2 was a director of the defendant no.3 company. The defendant nos.1 and 2 as well as mother of the defendant no.1 were the promoters of the defendant no.3 company The controversy in the suit revolves around the following two properties which belonged to the defendant nos.1 and 2: (i) the ground floor of the property D-6/2, Vasant Vihar, New Delhi (hereinafter referred to as Vasant Vihar property ) (ii) a penthouse 1917A (re-numbered as 1923A), DLF Magnolias, Gurgaon, Haryana (hereinafter referred to as DLF property ). We note that apart from ground floor, the defendant nos.1 and 2 also owned the basement of the property no.d-6/2, Vasant Vihar, New Delhi The defendant no.3 had obtained financial facilities from the RFA(OS)No.127/2014 Page 6 of 156

7 ICICI Home Finance (defendant no.4) which were secured by creation of charge in its favour with regard to the above properties. It had also taken loans from M/s Genesis Finance Co. Ltd. (defendant no.6 herein) So far as the necessity for impleading the defendant no.6 is concerned, it was stated that plaintiff has learnt from reliable sources that defendant nos.1 and 2 have taken loan from defendant no.6 and cleared the dues of defendant no.4. The plaintiff also states that as the defendant no.6 was claiming to have stepped into the shoes of defendant no.4 ICICI Bank, and understood to have become the first charge holder of the said two properties instead of defendant no.4, and therefore, it was necessary to implead defendant no So far as the DLF - defendant no.5 was concerned, SICPA submitted that out of `7,75,50,000/-, the total sale consideration for the DLF Penthouse, the defendant nos.1 and 2 had paid a substantial amount while sums remained due and payable necessitating impleadment of the DLF as defendant no.5 so that it could be directed to record the second charge of SICPA An amount of `5,00,00,000/- was loaned by SICPA to the defendant no.3 by way of a loan agreement dated 27 th August, 2008 on terms and conditions stated therein. The period of the loan was rolled over for a period of three months vide a loan agreement dated 27 th November, All terms and conditions remained the same except that the interest rate was enhanced to 21%. On the 27 th of February 2009, the loan was again re-rolled on request by RFA(OS)No.127/2014 Page 7 of 156

8 the defendant no.3 s for a period of 124 days. No immovable property of the defendant nos.1 to 3 was even mentioned in the loan agreement dated 27 th August, 2008 or 27 th November, SICPA gave the loan to defendant no.3 on 27 th August, 2008 against pledging of shares of defendant no.3 as the only security The second roll over on 27 th February, 2009 was without payment of any additional money or facility to the defendant no.3. However, it was upon offer of the "Borrower" i.e. the defendant no.3 to provide inter alia "second charge" of properties of promoters/promoters' relations. We set down hereunder the material terms and conditions of the loan agreement dated 27 th February, 2009 (SICPA being referred to as the 'Lender' and defendant no.3 as the 'Borrower') which came to be executed on this occasion : B. On request of the Borrower, the Lender has agreed to offer roll over facility of the loan of Rs.5,00,00,000/- (Rupees Five crore only) granted to the Borrower earlier on vide cheque no dated drawn on Corporation Bank, I.F. branch, New Delhi against Loan Agreement dated and thereafter rolled over on vide Loan Agreement dated NOW THIS AGREEMENT WITNESSES AND THE PARTIES HERETO AGREE AS UNDER: 1.1 Amount of Loan ARTICLE 1 TERMS OF THE LOAN RFA(OS)No.127/2014 Page 8 of 156

9 (a) In consideration of the Lender agreeing to roll over of the loan Facility the Borrower agreed to provide marketable securities held by the Promoter/Promoters relations by way of pledge, Personal Guarantees of the Promoter/Promoters relations, second charge on the properties located at D- 6/2 Ground Floor, Vasant Vihar, New Delhi and Penthouse No.1917-A, DLF, Magnolias, Gurgaon jointly owned by its Promoter/Promoters relations in favour of the Lender, Affidavit by the joint owners of the aforesaid properties agreeing to create a second charge on the properties in favour of the Lender and an agreement to sell the property located at D-6/2 Ground Floor, Vasant Vihar, New Delhi by the joint owners at a prefixed price of Rs.5.75 Crore to SICPA India Ltd. or its nominees in case of default in payment of the Facility, all forming part of the Loan Agreement dated and covered under Schedule I to the said Loan Agreement. xxx xxx xxx 1.3 Repayment If, at any time during the currency of this Agreement, the Borrower wishes to repay any part of the loan then outstanding, the Borrower may do so by giving to the Lender a notice of not less than two working days. The Borrower undertakes to repay to the Lender, loan amount in accordance with the provision in the relevant Schedule of Terms. On occurrence of any Event of Default, the loan Balance shall become payable. ARTICLE 2 Security & Margin A. Primary Security 2.1. Each Loan Facility Balances shall be secured by any or all of the following: Securities mean securities as defined under Section 2(h) RFA(OS)No.127/2014 Page 9 of 156

10 of the Securities Contract Regulation Act, 1956 (as amended from time to time) and also includes debentures, bonds, RBI relief Bonds deposits, collateralized debt obligations and securitised debt instruments units of mutual funds etc. In consideration to the loan facility granted to the Borrower by the Lender, the Borrower agrees to create an exclusive pledge in favour of the Lender securities acceptable to the Lender (collectively Securities ) more particularly described in the Schedule of Terms (Schedule I to the Loan Agreement) belonging to the Promoters Mr. Kapil Kumar S/o Late Kanwal Krishan, R/o D-6/2 Vasant Vihar, New Delhi and Mrs. Raj Rani W/o Late Kanwal Krishan, R/o D-6/2 Vasant Vihar, New Delhi hereinafter referred to as the Pledger duly covered and documented under Deed of Pledge executed on and forming part of this Loan Agreement and the Pledger shall do all such acts, deeds and things and execute all such documents, declarations and forms as may be required to record/create the pledge under the depository system as per the provisions of the Depository Act, 1996 and the regulations framed by the Securities Exchange Board of India (SEBI) and/or the byelaws of the concerned Depository and to do everything required to create an effective pledge in favour of the Lender, as security for repayment of the dues together with interest, default interest, interest tax, charges, dues, fees thereon or otherwise due to the Lender and for due performance by the Borrower of its obligation under this Agreement. B. Collateral Security 2.6 Second charge on the properties having housing loans from ICICI Bank located at D-6/2 Ground Floor Vasant Vihar, New Delhi and Penthouse No.1917-A, DLF, Magnolias, Gurgaon by Mr. Kapil Kumar S/o Late Kanwal Krishan, R/o D-6/2 Vasant RFA(OS)No.127/2014 Page 10 of 156

11 Vihar, New Delhi and Mrs. Ritu Kumar W/o Mr. Kapil Kumar, R/o D-6/2 Vasant Vihar, New Delhi in favour of the Lender for due fulfilment of the obligations under the Loan Agreement and forming part of the Loan Agreement dated and mentioned under Schedule I to the said Loan Agreement which is covered and further supported by: Affidavit by Mr. Kapil Kumar S/o Late Kanwal Krishan, R/o D-6/2 Vasant Vihar, New Delhi and Mrs. Rittu Kumar W/o Mr. Kapil Kumar, R/o D- 6/2 Vasant Vihar, New Delhi to offer second charge on the aforesaid properties Power of Attorney executed by Mr. Kapil Kumar S/o Late Kanwal Krishan, R/o D-6/2 Vasant Vihar, New Delhi and Mrs. Ritu Kumar W/o Mr. Kapil Kumar, R/o D-6/2 Vasant Vihar, New Delhi in favour of SICPA India Ltd. in connection with the second charge on the aforesaid properties Will by Mr. Kapil Kumar S/o Late Kanwal Krishan, R/o D-6/2 Vasant Vihar, New Delhi and Mrs. Rittu Kumar W/o Mr. Kapil Kumar, R/o D- 6/2 Vasant Vihar, New Delhi in connection with the aforesaid properties Agreement to Sell Agreement to sell the property located at D-6/2 Vasant Vihar, New Delhi at a prefixed price of Rs.5.75 Crore (Rupees five crore seventy five lakhs only) by Mr. Kapil Kumar S/o Late Shri Kanwal Krishan, R/o D-6/2 Vasant Vihar, New Delhi and Mrs. Ritu Kumar w/o Mr. Kapil Kumar, R/o D-6/2 Vasant Vihar, New Delhi to SICPA India Ltd. or its nominees in case of default in payment of the Loan Facility by or inability to sell the property before to fulfil the obligation of repayment of the Loan Facility under the Loan Agreement. (Emphasis supplied) RFA(OS)No.127/2014 Page 11 of 156

12 8.9. We may also note that the events of default for termination of the loan agreement dated 27 th February, 2009 were also anticipated under the agreement. In Article 4 of the agreement, the parties had postulated as follows : ARTICLE 4 EVENT OF DEFAULT AND TERMINATION 4.1. Events of Default Each of the following events is, and shall be deemed to constitute, an Event of Default if the Borrower and/or Security provider (wherever applicable) a) Defaults in the payment of any instalment of the Facility, any instalment of interest or any expense or charges as and when they become payable; b) Is called upon to make good the Margin under Article 2.3 and it fails to do so within the period of notice specified in the said article; c) Has made any material misrepresentation of facts, including (without limitation) in relation to the Security; d) Is unable to pay its debts or has admitted in writing its inability to pay its debts, as and when they become payable; or suffer any adverse material change in his/her/its financial position or defaults in any other agreement with the Lender; e) Default in creation of the second charge on the properties referred to under clause no.4.1(e) beyond 10 days from the date of signing the Loan Agreement.... f) Default in making the payment of EMIs by Mr. Kapil Kumar S/o Late Kanwal Krishan, R/o D-6/2 Ground Floor, Vasant Vihar, New Delhi /Mrs. Rittu Kumar W/o Mr. Kapil Kumar R/o D-6/2 Ground Floor, Vasant Vihar, New Delhi , for the housing loans taken against security of properties located at D-6/2 Ground Floor, Vasant Vihar, New Delhi and Penthouse No.1917-A, DLF, Magnolias, Gurgaon beyond 3 days from the date of RFA(OS)No.127/2014 Page 12 of 156

13 their falling due. (Emphasis supplied) Inasmuch as the defendant nos.1 to 3 have objected to the maintainability of the suit on account of the applicability of the Arbitration and Conciliation Act, 1996, we set out hereunder the arbitration agreement contained in Clause 5.5 of this agreement as well which reads thus : 5.5 Arbitration Any and all disputes arising out of or in connection with this Agreement and the Schedule(s) of Terms attached hereto or the performance of this Agreement shall be settled by arbitration to be referred to a sole arbitrator to be appointed by the Lender and the award thereupon shall be binding upon the parties to this Agreement. The place of the arbitration shall be in Delhi, in accordance with the provisions of the Arbitration and Conciliation Act, 1996 and any statutory amendments thereof and will also be under the jurisdiction of the court at Delhi We may also extract clause in the Schedule I of the loan agreement relied upon by the plaintiff which read as follows: SCHEDULE I SCHEDULE OF TERMS FOR LOAN AGAINST SECURITIES. ATTACHMENT TO LOAN AGREEMENT DATED AND FORMING PART OF THE LOAN AGREEMENT XXX XXX Agreement to sell the property located at D-6/2 Ground Floor, Vasant Vihar, New Delhi at a prefixed price of Rs.5.75 Crore by Mr. Kapil Kumar RFA(OS)No.127/2014 Page 13 of 156

14 S/o Late Shri Kanwal Krishan, R/o D-6/2, Vasant Vihar, New Delhi and Mrs. Rittu Kumar w/o Mr. Kapil Kumar, R/o D-6/2, Vasant Vihar, New Delhi to SICPA India Ltd. or its nominees in case of default in payment of the Loan Facility by or inability to sell the property before to fulfil the obligation of repayment of the Loan Facility under the Loan Agreement.... (Emphasis supplied) On this occasion of the second roll over of the loan, therefore, SICPA sought additional security from the defendant nos.1 to 3 by way of the following requirements : (i) Marketable securities held by promoters/promoters relations by way of pledge. [clause 1.1(a)] (ii) Personal guarantees of the promoters/promoters relations. [clause 1.1(a)] (iii) Second charge on the properties located at D-6/2, Ground Floor, Vasant Vihar, New Delhi and Penthouse No.1917A, DLF Magnolias, Gurgaon, Haryana jointly owned by promoters/promoters relations. (Clause 2.6) (iv) Affidavits by the owners of the aforesaid properties agreeing to create second charge on the properties in favour of lender. (Clause 2.6.1) (v) Power of attorney by Mr. Kapil Kumar and Ms. Rittu Kumar in connection with second charge. (Clause 2.6.2) (vi) Will by Mr. Kapil Kumar and Ms. Rittu Kumar in connection with aforesaid properties. (Clause 2.6.3) (vii) An agreement to sell the property located at D-6/2, Ground Floor, Vasant Vihar, New Delhi by the joint owners at a pre-fixed price of Rs.5.75 crores to SICPA or its nominees in case of default RFA(OS)No.127/2014 Page 14 of 156

15 in the payment of the financial facilities, which formed part of the loan agreement dated 27 th February, (Clause 2.6.4) It is not disputed that out of the above requirements set out in Clause 1.1(a) of Article 1 of the Loan Agreement dated 27th February, 2009, the defendant nos.1 to 3 provided the following : (i) the pledge of shares of defendant no.3 which were held by promoters of the company for an amount equivalent to 2.50 times of the value of the loan amount. As per the Schedule to the loan agreement, the value of the shares was agreed to be the closing share price on BSE as on the date of the pledge. (ii) SICPA also obtained personal guarantees of the promoter members. SICPA does not seek enforcement of these guarantees. So we are not examining the validity thereof. (iii) Post-dated cheques for the amounts of the principal and interest were also taken. (iv) two unregistered General Power of Attorneys both dated 27 th February, 2009 were executed by defendant nos.1 and 2. The first General Power of Attorney was in respect of property being Ground Floor, D-6/2, Vasant Vihar, New Delhi and the second attorney was in respect of property being Penthouse 1917A, DLF Magnolias, Gurgaon, Haryana whereby SICPA was constituted as the general and lawful attorney of defendant nos.1 and 2. (v) Mr. C. Mukund, learned counsel for the appellant has drawn our attention also to a letter of guarantee dated 27 th February, 2009 executed by defendant no.1 and an identical letter of guarantee RFA(OS)No.127/2014 Page 15 of 156

16 executed by defendant no.2 whereby they personally undertook to abide by the terms and conditions of the loan agreement dated 27 th February, (vii) In terms of Clause of the loan agreement read with Clause (of the Schedule thereto), SICPA also entered into an unregistered agreement to sell with the defendant nos.1 and 2 on the 27 th February, 2009 itself. This agreement was only in respect of ground floor of the property bearing no.d-6/2, Vasant Vihar, New Delhi SICPA was referred to as the 'Second Party' while defendant nos.1 and 2 were referred to as the 'First Party' therein. This agreement to sell contained recitals with regard to the disbursement of the loan; its being rolled over twice; the fact that the defendant no.3 had submitted post-dated cheques (PDCs); a demand promissory note (DPN) dated 27 th February, 2009 for the sum of `5,00,00,000/- payable on 30 th June, 2009 and that the defendant nos.1 and 2 had agreed to provide a second charge against the Vasant Vihar property (only ground floor) as well as the DLF property So far as the agreement to sell dated 27 th February, 2009 was concerned, SICPA was referred to as the Second Party, while Brushman India Ltd. - defendant no.3 was referred to as the 'BIL'. This agreement to sell specifically stated as follows : And that, should BIL be unable to repay the outstanding dues in respect of said ICD of Rs. 5 crores along with interest and charges thereon in accordance with the terms of the loan agreement dated , the First Party agrees and undertakes as under with respect RFA(OS)No.127/2014 Page 16 of 156

17 to the aforesaid property located at Ground Floor, D- 6/2, Vasant Vihar, New Delhi That the First Party is the true and lawful owner of the aforesaid property. 2. That in pursuance to this Agreement, the aforesaid property has been valued at Rs crores (Rupees five crores seventy five lacs only) as on , which consideration has been agreed between the parties to be price on in part settlement of the total outstanding dues in respect of said ICD of Rs. 5 crores along with interest thereon irrespective of and in supersession of any prior understanding, agreement, writings, entries in books of account etc. 3. That since the said property is carrying housing loan(s) from ICICI Bank Limited/ICICI Home Finance, the second party shall settle the outstanding dues of ICICI Bank Limited/ICICI Home Finance before enforcing the Agreement. The First Party will however pay the EMIs due on the home loan against the aforesaid property during the period upto In the event the First Party is able to get a better price than the consideration agreed between them in this agreement, the First Party would be duly authorized for contracting and selling the aforesaid property without recourse to the Second Party but under an information to the Second Party in respect of contracting a deal of aforesaid sale consideration. In this case the first party undertakes to settle the ICICI Bank Limited/ICICI Home Finance loans out of the sale proceeds and remit the balance to the second party towards part payment against the ICD. 5. That the First Party shall hand over the vacant physical possession of the aforesaid property to the purchaser on execution of sale deed along with the documents relating to the aforesaid property in possession of ICICI Bank Limited/ICICI Home RFA(OS)No.127/2014 Page 17 of 156

18 Finance. (Emphasis supplied) Thus the basement of the property no. D-6/2, Vasant Vihar, New Delhi , also owned by the defendant nos.1 and 2, was not part of any agreement with the SICPA. Justifiably, therefore, SICPA does not assert second charge, mortgage or any claim with regard to the same. For the purposes of the instant adjudication, it is noteworthy that by the aforedetailed two General Power of Attorneys in favour of SICPA, executed by the defendant nos.1 and 2, SICPA stood authorized to inter alia create collateral security with regard to the two properties for the ICD of `5,00,00,000/- which it had advanced to the defendant no.3. The attorneys specified that they would be effective on or after 30 th June, 2009 subject to the terms of the loan agreement dated 27 th February, Under Clauses 3, 4, 5, 6 and 8, SICPA had sought and was empowered by the said General Power of Attorney to do the following : 3. To look after, supervise, manage, and control the affairs of the said Property. 4. To execute and to do or cause to be executed and done, all such deeds, instruments and things in relation to any of the matters or purposes in respect of the aforesaid Property as in the absolute discretion of the said attorney/sicpa shall deem expedient, as full and effectively as Executants could do if they were personally present. 5. To transfer the said Property to SICPA in whole or part as the case may be or in any manner whatsoever. 6. To sign, execute, endorse or do any act that may RFA(OS)No.127/2014 Page 18 of 156

19 be necessary for the registration of documents before any competent authority. xxx xxx xxx 8. To pay the arrears of ground rent, price, premium, conversion charge, surcharge, processing fee, stamp duty, registration charge, unearned increase, and other dues of any nature in respect of the said Property to the authorities concerned on demand or otherwise. These expenses shall be borne by the executants and if paid by the lender on any eventuality the amount is to be reimbursed by the executants. 9. To do all acts, deeds and things so that duties, obligations, responsibilities of Executants in respect of said Property, if not complied with. (Emphasis by us) At this stage, it is also necessary to notice certain facts relating to the dealings of the defendant nos.1 and 2 with defendant no.6 - M/s Genesis Finance Co. Ltd. The defendant no.6 is stated to be a non-banking financial corporation which stands registered with the Reserve Bank of India. Pursuant to a loan agreement dated 26 th September, 2006, the defendant no.6 loaned a sum of `2,50,00,000/- to the defendant nos.1 and 2 against the equitable mortgage of the Penthouse 1917A, DLF Magnolias, Gurgaon, Haryana (hereafter referred to as DLF property ). The lien of defendant no.6 was duly marked with defendant no.5 DLF Ltd., the builders thereof It is noteworthy that defendant nos.1 and 2 entered into a financial relationship with defendant no.6 in This was about two years prior to any dealings of SICPA with the defendant no.3 which commenced on 27 th August, RFA(OS)No.127/2014 Page 19 of 156

20 8.17. On the request of defendant nos.1 and 2 that they were getting loan on better interest rates from ICICI Bank, the defendant no.6 released the DLF property from the flat buyer agreement on 1 st September, 2007 and also got its lien removed from the DLF in favour of ICICI Bank. Defendant no.6, however, obtained a pari passu charge over the DLF penthouse with the ICICI Bank On 4 th July, 2008, another loan of `83,00,000/- was given by defendant no.6 to the defendant nos.1 and 2 against the equitable mortgage of the basement of property bearing no. D-6/2, Vasant Vihar, New Delhi As per the defendant no.6, the loan account was moving smoothly and only approximately `47.75 lakhs remained due from the defendant nos.1 and 2. Based on past performance, the defendant no.6 advanced a further sum of ` lakhs against the DLF property bringing the total loan to defendant nos.1 and 2 to `2.20 crores. A supplementary loan agreement dated 1 st October, 2008 was also executed in continuation of the original loan agreement dated 26 th September, It is sometime in February, 2010 that the defendant nos.1 and 2 became irregular in the repayment of the financial facility. The defendant no.6 was approached with the information that the defendants were unable to service the ICICI loan facility and the defendant nos.1 and 2 were apprehending adverse action against the DLF and the Vasant Vihar properties by the ICICI bank for recovery. The defendant nos.1 and 2 also disclosed that for the reason that the DLF dues were mounting, it was also threatening to RFA(OS)No.127/2014 Page 20 of 156

21 cancel their allotment The defendant nos.1 and 2 informed defendant no.6 that they had already taken loan upon the ground floor of the Vasant Vihar property from the ICICI Bank and due to their default, ICICI Bank was also likely to take action for recovery. These defendants sought the help of the defendant no Due diligence and enquiries by the answering defendant revealed that the DLF had already cancelled the allotment of the penthouse due to non-payment of instalments totalling about `80,00,000/-. ICICI loan against the DLF property was about `5.85 crores which was also heading towards default. Dues towards the loan advanced by defendant no.6 against the DLF property to defendant nos.1 and 2 were also to the tune of `2.80 crores As on 15 th February, 2010, against the Vasant Vihar property, the defendant nos.1 and 2 owed over `5.40 crores to ICICI Bank and over `1.33 crores to the defendant no.6 secured by charges over their properties. We note that these amounts are beyond the claim of SICPA which had dealings with the defendant no Let us see the further position which is disclosed by the defendant no.6 in respect of these properties on record before the learned Single Judge. The defendant nos.1 and 2 entered into a second supplementary loan agreement dated 24 th February, 2010 (in continuation of the earlier loan agreement and supplementary loan agreement dated 21 st September, 2006 and 1 st October, 2008 RFA(OS)No.127/2014 Page 21 of 156

22 respectively) with the defendant no In these circumstances, the defendant no.6 agreed to assist the defendant nos.1 and 2 by purchasing the basement and ground floor of property bearing no.d-6/2, Vasant Vihar, New Delhi for a total sum of `6.75 crores vide an agreement dated 15th February, 2010 which was paid to them in the following manner : Details (i) In cash (against the receipt dated 15 th February, 2010) (ii) Adjusted towards re-payment of dues of defendant no.6 against loan agreement dated 4 th July, 2008 (iii) Taking over of the loan liability of ICICI Bank against the ground floor of property bearing no.d-6/2, Vasant Vihar, New Delhi Payments `2 lacs `1.33 crores `5.40 crores (this amount stands finally paid on 23 rd August, 2010) Pursuant to the said agreement dated 15 th February, 2010, possession of the Vasant Vihar property was also handed over to the defendant no.6. The defendant nos.1 and 2 clearly represented in this agreement that there was no other loan liability against the properties or previous agreements to sell or legal impediment upon transfer of the property of any nature whatsoever Vide a Second Supplementary Loan Agreement dated 24 th February, 2010 in continuation of loan agreement dated 21 st September, 2006 and supplementary loan agreement dated 1 st October, 2008, the defendant no.6 paid a sum of `80,00,000/- to the DLF in the account of the defendant nos.1 and 2 and revived RFA(OS)No.127/2014 Page 22 of 156

23 the allotment of penthouse. The defendant no.6 also cleared the overdue instalments of defendant no.4 (ICICI Bank) and started paying the dues of defendant no.4 on behalf of defendant nos.1 and 2 to regularise the loan with a view to protect the DLF property In the second supplementary loan agreement dated 24 th February, 2010 with the defendant no.6, it had been agreed that the defendant nos.1 and 2 shall be at liberty to dispose of the DLF penthouse till 31 st May, 2010 and clear the up to date dues of defendant no.6 with interest, failing which, the defendant no.6 agreed to purchase the DLF property on a mutually agreed price In the meantime, till 31 st May, 2010, the defendant no.6 continued to pay the dues of the ICICI Bank against the DLF property and also paid the dues of the DLF owed by the defendants In order to further secure the interest of defendant no.6, the defendant nos.1 and 2 executed a registered power of attorney dated 7 th April, 2010 in favour of the representative of defendant no It appears that defendant nos.1 and 2 could not find a suitable buyer to sell the DLF property till 31 st May, As such finding no way out, the defendant nos.1 and 2 agreed to sell their DLF penthouse to defendant no.6 on a negotiated agreed price of `11,51,00,000/-. This sale consideration, at which the defendant no.6 purchased the DLF property from the defendant nos.1 and 2, was RFA(OS)No.127/2014 Page 23 of 156

24 paid in the following manner: S. Particulars of payment Amount No. (i) In cash to the defendant nos.1 and 2 : `1,00,000/- against receipt dated 1 st June, 2010 (ii) Towards re-payment of dues of defendant no.6 against the loan agreement dated 4 th July, 2008 : `5,00,00,000/- (iii) Loan liability of the ICICI Bank : `5,65,00,000/- against the DLF property as on 1 st June, 2010 (paid on 23 rd August, 2010) (iv) Dues payable to the DLF : `85,00,000/- Total : `11,51,00,000/ Thus a sum of `80,00,000/- stands paid by defendant no.6 to DLF. However, DLF has increased the dues which has now become almost to the tune of `2 crores which defendant no.6 is required to pay. We are informed by the defendant no.6 that for the reason that the matter became subjudice before the court, there has been a time gap in recording a transfer of DLF Penthouse in favour of defendant no Towards the sale transaction for the Vasant Vihar property, the defendant nos.1 and 2 executed an agreement to sell dated 15 th February, 2010 and a power of attorney of the same date in favour of the defendant no.6. Towards the sale of DLF property, to formally complete the sale transaction of the DLF property in favour of defendant no.6, the defendant nos.1 and 2 executed an agreement to sell dated 1 st June, 2010 and a memorandum of RFA(OS)No.127/2014 Page 24 of 156

25 understanding dated 1 st June, 2010 besides a general power of attorney dated 7 th April, On our query, we are informed by Mr. Vikas Arora, learned counsel for defendant no.6 that the total amount owed by defendant nos.1 and 2 to ICICI Bank against Vasant Vihar property and DLF property was taken over by the defendant no.6 at a figure of `11.05 crores (`5.40 crores and `5.65 crores respectively). During the settlement finally effected with the ICICI Bank, the defendant no.6 was able to get a discount In terms of the above commitment, the ICICI Bank loan was cleared by the defendant no.6 on 23 rd August, 2010 by payment of `10,84,53,097/- to the ICICI Bank. As a result, on 6 th September, 2010, the ICICI gave its no objection certificates in favour of defendant nos.1 and 2 to defendant no.6 to the transfers of the properties. By this certificate, the ICICI had also confirmed that it had no other or further dues or claims from the defendants under the loan. This corroborates the assertion by defendant no.6 of the payments made to ICICI ICICI Bank thereafter released the original title deeds of the Vasant Vihar property as well as the DLF property to the defendant no.6. In terms of requirements of DLF, defendant no.6 got its lien marked in the records replacing name of the ICICI The defendant no.6 has contended that it made the payments to ICICI as well as DLF asserting ownership over the properties We are informed by defendant no.6 that though it had paid the full and final consideration to the defendant nos.1 and 2 with RFA(OS)No.127/2014 Page 25 of 156

26 regard to the purchase of the Vasant Vihar property (both ground floor and its basement), however, to minimise its own costs, the defendant no.6 did not get the formal sale deed executed or registered in its favour. It was agreed that as and when the defendant no.6 exercised its rights to do so, the defendant nos.1 and 2 would execute all necessary documents, either in favour of the defendant no.6 or in favour of its nominee It appears that on 11 th October, 2010, the defendant no.6 also located a buyer (the proposed defendant no.7) for both the basement and ground floor of D-6/2, Vasant Vihar, New Delhi for a total sale consideration of `6,75,00,000/-. The deal was finalised by this buyer giving a token amount of `10,00,000/- by a cheque bearing no drawn on Standard Chartered Bank on this date. The formal agreement to sell was executed on 21 st October, 2010 by the defendant no.6 from the defendant nos.1 and 2. The representative of the defendant no.6 signed the agreement to sell as a witness and confirming party to the transaction. The formal conveyance deed i.e. the sale deed was executed and registered in favour of proposed defendant no.7 on the 7 th of December 2010 by the defendant no.6 from the defendant nos.1 and 2 for the total sale consideration of `6,75,00,000/ It is admitted before us that other than the aforenoticed offers by defendant nos.1 and 2 in the loan agreement dated 27 th February, 2009 to create a second charge in favour of SICPA with regard to the ground floor of the Vasant Vihar property as well as the DLF property, nothing further was undertaken by the defendant RFA(OS)No.127/2014 Page 26 of 156

27 nos.1 and 2. Furthermore, as on 27 th February, 2009, when SICPA entered into loan agreement as well as agreement to sell with defendant nos.1 and 2, the ground floor of the Vasant Vihar property was bound as security towards the loan of `5.40 crores from the ICICI. While the loan of `1.33 crores from the defendant no.6 stood secured against the basement of the said property. So far as the DLF penthouse was concerned, the defendant no.6 had a pari passu charge with ICICI to secure their loans. However, subsequently defendant no.6 took over the ICICI and DLF liabilities of defendant nos.1 and 2 and its lien and rights were recorded qua this property as well On behalf of the defendant no.3, the defendant no.1 wrote to SICPA on the 23 rd February, 2010, pointing out that the company had offered to create a second charge with regard to the ground floor of the Vasant Vihar property and the DLF property to secure the loan taken by the defendant no.3. SICPA was clearly informed by this letter that there were demands from DLF and ICICI housing loan department to clear the liabilities and that the defendants were under pressure to sell both properties to clear the loans and that a buyer had been found for the Vasant Vihar property. By the letter dated 23 rd February, 2010, SICPA was informed as follows:... We wish to inform you that there is a demand notice raised by DLF on the Penthouse No.1923A of appx. Rs.98 lacs and the allotment is liable to be cancelled in case this amount is not paid within a reasonable time. Further, there is a pressure from ICICI housing loan department to clear off the loans on both the properties, failing which they have threatened to initiate action as RFA(OS)No.127/2014 Page 27 of 156

28 per law. We are therefore, under pressure to sell off both the properties and clear the bank loans. We have found a buyer for Vasant Vihar property and have taken a token advance against the same, for a total net consideration of Rs.675 lacs (ground plus basement combined). Out of this, a sum of Rs.540 lacs (appx) has to be paid to ICICI bank various loans running against the Vasant Vihar property while Rs.133 lacs has to be paid to M/S Genesis Finance Co. Ltd. towards the loan running against the basement. This leaves a sum of Rs.2.00 lacs (appx) balance with us to be repaid to you.... You are aware of the financial crunch at our end and we are sure that this gesture of remitting you more amount than what is left out of sale proceeds shall not go unappreciated by you. xxx xxx xxx It is not out of place to inform you that talks with prospective buyers for Magnolia property are also underway and we hope to finalise the same within next two/three weeks.... (Emphasis by us) The defendants further informed SICPA that,... as a goodwill gesture, we are remitting you a sum of `5 lacs (vide D/D No dt. 15/2/10 for `2 lacs and No dt. 15/2/10 for `3.00 lacs, both drawn in your favour on HDFC Bank). SICPA was also informed that the talks with prospective buyers for the DLF property as well were also underway and that the defendants hoped to finalise the same within two three weeks SICPA has submitted that the letter dated 23rd February, 2010 from the defendant was received by it only on 4 th March, Mr. C. Mukund, learned counsel for SICPA has attempted to RFA(OS)No.127/2014 Page 28 of 156

29 make much about this belated receipt. However, given SICPA's reaction to the information furnished thereby, nothing turns on this. This letter also shows that SICPA had been clearly put to notice with regard to the debts owed by the defendant nos.1 to 3 from the ICICI Home Finance defendant no.4 as well as Genesis Finance Co. Ltd. - defendant no Let us see what was SICPA's response to the letter dated 23 rd February, 2010 of defendant no.3? The same can be summed up thus : (a) Firstly, SICPA raised no objection to the property transactions, the sale consideration or the adjustment of the sale consideration by the defendant nos.1 to 3. SICPA did not claim any right, title or interest in these properties of defendant nos.1 and 2. (b) Secondly, SICPA unconditionally encashed the two enclosed demand drafts for `5,00,000/-. This amount included the surplus consideration available with the defendant nos.1 and 2 from the sale of the Vasant Vihar property, of course after clearing the dues of ICICI Bank - the defendant no.4 and of some amount to defendant no.6. In fact, SICPA thereby thus ratified the sale of these properties by the defendants. (c) Thirdly, as noted above, in order to secure the financial facility given by SICPA, defendant nos.1 and 2 (along with mother of defendant no.1) had also pledged shares worth 2.5 times of the value of the loan amount of `5.0 crores. After receipt of the letter dated 23 rd February, 2010 and the amount of `5.0 lakhs from the RFA(OS)No.127/2014 Page 29 of 156

30 defendant no.3, between the period from 23 rd March, 2010 till 17 th May, 2010, out of these shares, it sold 18,74,000 equity shares whereby it realized a sum of `1,69,95,042/-. As a result, after giving credit for the sum of `7,790/- being the value of the remaining 1,000 shares, a sum of `1,70,02,832/- fell to the credit of the said defendants. According to SICPA, after giving adjustment on this amount, a sum of `4,93,17,156/- still remained due and payable from the defendant nos.1 to 3 as on 17 th May, On account of interest liability thereon, as on 30 th September, 2010, a sum of `5,56,55,973/- became due and payable by the defendant nos.1 to 3 to the plaintiff. (d) Fourthly, SICPA wrote a registered letter on the 9 th of March 2010 requesting attested copies of the conveyance deed/agreement to sell for Vasant Vihar property as well as the request letter written to ICICI Bank (defendant no.4) and Genesis Finance Co. Ltd. (defendant no.6) for settlement of the loan including prepayment etc. and their response. (e) Fifthly, SICPA issued a reminder dated 13 th March, 2010 to the defendant no.1 only pointing out that the value of the securities with SICPA was below the total outstanding amount payable by the defendant no.1, SICPA thus recognized the validity of the property transactions by defendant nos.1 and 2 and did not assert any rights therein. (f) Sixthly, by its letter dated 6 th April, 2010, SICPA reiterated the request for copies of the conveyance documents without making any claim in either the Vasant Vihar or DLF property. RFA(OS)No.127/2014 Page 30 of 156

31 SICPA did not convey any objection or any distress on its part about the sale of the properties by the defendants. (g) Seventhly, a legal notice was addressed to defendant nos.1 to 3 by the plaintiff on 10 th June, 2010 still seeking copies of documents executed by the defendants for agreeing to sell the properties. Reference was made to the action of the DLF in cancelling the offer of buying back of the flat under its scheme and a final notice was given by SICPA seeking status of the two properties. Interestingly the legal notice dated 10 th June, 2010 refers to aforesaid two properties which are lying mortgaged with our client as second charge, first charge thereof are with ICICI Bank. At the end of this communication also, the legal notice stated that information would be given to the general public about the mortgage of the above two properties. In this notice, SICPA thus refers to a mere second charge on the properties and that the properties could be sold after clearing SICPA s dues and after obtaining its consent. (h) Eighthly, it appears that unfortunately the legal notice dated 10 th June, 2010 which was sent to the defendant nos.1 to 3 was not properly printed. The defendants objected to its legibility by their communication dated 22 nd June, In the response dated 6 th July, 2010 sent by SICPA s lawyers (enclosing a legible copy of their previous notice), SICPA merely demanded from the defendant no.3, information about the present status of the aforesaid properties failing which our client shall proceed with RFA(OS)No.127/2014 Page 31 of 156

32 causing of paper publication of Public Notice in two news papers, one in English and the other one in Hindi, having circulation at Delhi informing the general public about our client s second charge in respect of the above two properties. (i) Ninthly, under SICPA s instruction public legal notices were got published by its lawyers on the 23 rd of July 2010, in the English and Hindi editions of Hindustan Times informing the public that the Vasant Vihar and DLF penthouse were mortgaged the properties in favour of SICPA as a second charge SICPA thus makes no objection that defendant nos.1 and 2 could not have transferred the properties. It asserted no relationship or rights under the agreement to sell dated 27th February, In terms of Clause 3 of this agreement to sell, SICPA did not offer to make good the ICICI liability. SICPA does not claim any right in the properties other than a second charge. We shall deal with the validity of this claim of "mortgage" and "second charge" at a later stage in this judgment The defendant no.6 has urged that it was not aware of the loan between SICPA and the defendant no.3. It has stated that it had no knowledge of any second charge on the properties purchased by it and that the purchased transactions were completed with regard to the Vasant Vihar property in February, 2010 and the DLF on 1 st June, It is also necessary to note the letter dated 11 th October, 2010 sent by SICPA to the defendant no.6 whereby for the first time it called upon defendant no.6 to provide details of the loan given by it RFA(OS)No.127/2014 Page 32 of 156

33 to the defendant nos.1 to 3 and arrangement entered into for taking over loans. SICPA thereby called upon the defendant no.6 only to record its second charge of the plaintiff upon the properties including the DLF Penthouse. The defendant no.6 promptly informed SICPA vide letter dated 27 th October, 2010 that the two properties had been purchased by it against due consideration and as such second charge of SICPA could not be recorded against the two properties. This was received by the plaintiff on the 4 th of November Filing and proceedings in CS(OS)No.2277/ Let us now examine the legal action initiated by SICPA. It did not initiate legal action upon receipt of the information by the letter dated 23rd February, CS(OS)No.2277/2010 was filed only on the 2 nd November, 2010 by the plaintiff which came to be listed before the court on 10 th November, 2010 for the first time SICPA also filed I.A.No.15011/2010 under Order XXXIX Rules 1 and 2 of the CPC seeking interim injunction and I.A.No.15012/2010 under Order II Rule 2 of the CPC along with the plaint SICPA did not mention the letter dated 27 th October, 2010, informing that defendant no.6 was the purchaser of the properties, before the court on the 10 th of November, No ex-parte interim injunction was granted by the court Mr. C. Mukund, learned counsel for the appellant would RFA(OS)No.127/2014 Page 33 of 156